Protecting properties through structures

Question from Roy updated on 4th June 2010:

I have 3 properties under my name, and I’m looking into:
1. Create a structure that will help protect these assets (when I will enter into relationship in the future – I will want to protect it from spouse claiming part of it).
2. A structure that will enable me to continue offset the losses against my income( I am working full-time).

I was advised to initially move the properties into an LAQC (which will enable me to continue offset losses, but won’t protect from spouse situation), and when entering into a relationship, move it from LAQC to a Trust(with me being the trustee).

My questions:
1. Will this solution achieve the 2 primary goals?
2. Are there any tax(depreciation) recovery when moving properties from LAQC to a trust?

Our expert Mark Withers responded:

Traditionally, a trust has been the only structure that offers genuine asset protection. However, even a trust is not a "golden bullet" when it comes to relationship problems. This is because the debt the trust owes you for your property remains a personal asset that is still potentially subject to claim. These debts a usually gifted away at $27000 per annumn which means transfer of assets to a trust is not a quick fix.

From a property perspective, the trust is unable to distribute tax losses to you which is not helpful in your quest for an arrangement that will still offer you a tax offset. The LAQC offers the tax offset but no asset protection. The only real solution is to confront the issue head on with your partner and jointly agree to enter a relationship property agreement that contracts you out of the act. This agreement states your respective seperate property and would go a long way to addressing your concerns, potentially allowing you to structure for tax effectiveness if you can draw comfort from the relationship agreement.

Yes, the transfer of assets between LAQC and trust triggers depreciation recovery. Please note all comments re tax losses in property are now up in the air pending the changes to property tax that have been signalled. Mark Withers

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.


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